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GS Paper – 3 GS Paper – 2 |
Make in India:
This editorial is based on “The World Wants to Make in India.” The article focuses on India’s growth as a global investment hub, driven by the Make in India initiative and supported by policies like Startup India and the PLI schemes. It highlights India’s appeal through its “four Ds” and its success in toy manufacturing, which has led to more exports, job creation, and foreign investment.
For Prelims: Make in India initiative, Startup India, Production Linked Incentive (PLI), Atmanirbhar Bharat Abhiyan, National Infrastructure Pipeline, India Industrial Land Bank, Quad, Supply Chain Resilience Initiative, Digital infrastructure, Startup India initiative, Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act of 2013.
For Mains: Challenges Affecting India’s Investment Appeal, Measures India Can Take to Boost Its Attractiveness as an Investment Destination.
India’s transformation from a once economically constrained nation into a global investment hub is largely credited to the Make in India initiative. This flagship program has revitalized job creation, spurred economic growth, and empowered businesses, particularly MSMEs, to produce high-quality goods. It has also transformed several sectors from importers of low-quality products to exporters of premium goods, with the toy manufacturing industry being a notable example, achieving a 239% rise in exports and a significant reduction in imports.
The success of Make in India is bolstered by complementary policies such as Startup India, Production Linked Incentive (PLI) schemes, and major infrastructure investments. These initiatives have attracted substantial foreign investment, created millions of jobs, and positioned India as a vital player in high-tech and emerging technologies. India’s appeal to global investors is further strengthened by the “four Ds”: decisive leadership, large consumer demand, demographic dividend, and a robust democracy. As a result, India has emerged as a top destination for manufacturing and innovation, with a bright future ahead.
- How is India Becoming an Increasingly Attractive Investment Destination?
- Strong Economic Growth: India has established itself as one of the world’s fastest-growing economies, with total FDI inflows reaching USD 990.97 billion from April 2000 to March 2024.
The IMF projects India’s GDP growth at 6.7% for FY24, positioning it among the fastest-growing large economies.
The Atmanirbhar Bharat Abhiyan introduced a USD 270 billion economic stimulus package, accounting for 10% of the country’s GDP.
- Demographic Advantage: India boasts the world’s largest youth population, projected to grow from 1.21 billion in 2011 to 1.52 billion by 2036, offering a significant demographic edge.
With a vibrant and young workforce, India will remain one of the youngest countries globally through 2030.
This tech-savvy youth is driving digital growth, with internet users expected to reach 900 million by 2025, creating vast opportunities in e-commerce, digital services, and technology-driven sectors.
- Infrastructure Development: India is making rapid strides in infrastructure, with the National Infrastructure Pipeline (NIP) serving as a key growth engine. The NIP aims to build world-class infrastructure and help India achieve its goal of becoming a USD 5 trillion economy by FY 2025.
Over 9,700 projects worth USD 3,093.51 billion have been identified across critical sectors like Energy (24%), Roads (18%), Urban (17%), and Railways (12%).
A significant equity infusion of INR 6,000 crore into the National Investment and Infrastructure Fund (NIIF) further enhances India’s ability to attract global investment.
- Improved Ease of Doing Business: The Indian government has introduced various reforms to make the business environment more investor-friendly.
o India’s rank in the World Bank’s Ease of Doing Business Index improved from 142 in 2014 to 63 in 2019.
Recent initiatives include the removal of over 25,000 compliance requirements, process digitization, and the implementation of the Goods and Services Tax (GST).
The India Industrial Land Bank (IILB), a GIS-based portal, provides detailed information on industrial parks, further simplifying business operations.
1. Competitive Labor Costs: India offers a cost advantage with its large, growing workforce.
As one of the world’s largest labor markets, India provides a steady supply of workers across skill levels, with labor costs remaining highly competitive, particularly in manufacturing and services.
The average manufacturing labor cost in India is significantly lower than in China and many Southeast Asian countries.
Recent labor reforms offer greater flexibility to businesses while safeguarding workers’ rights, making India more attractive to labor-intensive industries.
2. Strategic Geopolitical Position: India’s growing geopolitical significance and its role as a counterbalance to China in the Indo-Pacific region have made it an increasingly attractive destination for global investors.
India’s involvement in strategic alliances like the Quad (with the US, Japan, and Australia) and its leadership in global initiatives such as the International Solar Alliance highlight its expanding global influencer.
Recent efforts, including the Supply Chain Resilience Initiative, have further boosted India’s appeal to international investors seeking alternatives to China.
3. Thriving Startup Ecosystem: India’s startup ecosystem has experienced rapid growth, now ranking as the third-largest in the world.
As of October 3, 2023, India boasts 111 unicorns with a combined valuation of $349.67 billion.
The government’s Startup India initiative, launched in 2016, has been instrumental in this success, offering funding, tax incentives, and regulatory support.
Despite global economic challenges, Indian startups raised USD 24 billion in equity funding in 2022, attracting substantial foreign investment.
4. Renewable Energy Drive: India’s strong commitment to renewable energy has opened up vast investment opportunities.
The country aims to reach 500 GW of renewable energy capacity by 2030, up from approximately 170 GW in early 2023.
This ambitious goal has led to increased investments in solar, wind, and green hydrogen projects.
These initiatives not only attract global investments but also position India as a key player in the global shift towards clean energy.
5. Digital Infrastructure and Fintech Boom: India’s digital infrastructure, particularly the India Stack, has transformed financial inclusion and opened up significant investment opportunities.
In 2023, the Unified Payments Interface (UPI) processed an astonishing 3,729.1 transactions per second, totalling 117.6 billion transactions for the year.
This robust digital framework has driven the expansion of the fintech sector, with India’s fintech market projected to reach USD 150 billion by 2025.
Global tech giants and venture capitalists are increasingly investing in Indian fintech startups, recognizing the potential of its large, underserved market and innovative digital solutions.
What Challenges Hinder India’s Attractiveness as an Investment Destination?
Infrastructure Gaps: Despite progress, India’s infrastructure remains below global standards, affecting efficiency and raising business costs.
o In 2023, India ranked 38th out of 139 nations in the World Bank’s Logistics Performance Index (LPI), highlighting the need for further improvement.
o Shortcomings in power distribution, water supply, and last-mile connectivity particularly hinder manufacturing competitiveness.
Regulatory Complexity and Policy Uncertainty: While the regulatory environment has improved, it remains complex and sometimes unpredictable, discouraging investors.
o Examples include retrospective tax disputes with companies like Vodafone and Cairn Energy, which were only settled after years of litigation in 2021.
o Frequent changes in e-commerce regulations and data localization requirements have also created uncertainty for tech companies.
Labor Market Rigidities: India’s new labor codes, introduced in 2019 and 2020, are yet to be fully implemented. Additionally, over 90% of the workforce is in the unorganized sector.
o A 2019 employability survey found that 80% of Indian engineers lack skills needed for the knowledge economy, with only 2.5% possessing expertise in AI, a key industry requirement.
Banking Sector Challenges: Public sector banks in India continue to struggle with high levels of non-performing assets (NPAs), which limit their ability to extend credit.
o According to the RBI’s Financial Stability Report (June 2024), NPAs of scheduled commercial banks, while declining, still stand at 2.8% (Gross NPA).
o The near-collapse of Yes Bank in 2020 raised concerns about the stability of the financial system.
Land Acquisition Challenges: Acquiring land for large-scale industrial and infrastructure projects remains difficult.
o The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation, and Resettlement Act of 2013, while protecting landowners, has made the process more time-consuming and costly.
o The Mumbai-Ahmedabad High-Speed Rail project has faced significant delays due to land acquisition hurdles.
o Lack of digitized land records in many states further complicates the process, leading to disputes and project delays.
Intellectual Property Rights (IPR) Concerns: Although India has strengthened its IPR regime, issues remain, particularly in the pharmaceutical and technology sectors.
o India ranked 42nd out of 55 countries in the 2023 U.S. Chamber of Commerce’s International IP Index.
o India’s patent laws, especially Section 3(d) of the Patents Act, have been contentious, setting a high bar for pharmaceutical patents.
o A 2022 FICCI report estimated the counterfeit goods market in India at ₹2.6 trillion across five key industries, further complicating IPR protection.
Digital Infrastructure and Cybersecurity: Despite rapid digitalization, India faces challenges in ensuring robust digital infrastructure and cybersecurity.
o In 2022, the Indian Computer Emergency Response Team (Cert-In) handled 1,391,457 cybersecurity incidents, raising concerns about data protection.
What Steps Can India Take to Enhance Its Appeal as an Investment Destination?
Accelerate Infrastructure Development: India should focus on closing infrastructure gaps by speeding up project execution and boosting investment.
o Emphasizing logistics efficiency could reduce India’s high logistics costs (14% of GDP), compared to developed countries (8-10%). Fast-tracking initiatives like the PM Gati Shakti National Master Plan could help save billions annually and boost export competitiveness.
Streamline Regulatory Processes: Simplifying regulatory frameworks is crucial to reduce compliance burdens and improve the ease of doing business.
o Building on reforms that eliminated 25,000 compliance requirements and decriminalized minor offenses, India should implement a single-window clearance system for all approvals at the central and state levels.
o Expanding successful models like Gujarat’s single-window system nationwide could reduce project delays and cut billions in compliance costs.
Labor Law Reforms and Skill Development: Swift implementation of the four labor codes would enhance labor market flexibility.
o Expanding skill development initiatives like the Pradhan Mantri Kaushal Vikas Yojana is essential to address the employability gap.
o Collaborations, such as the Google-NASSCOM partnership to train 100,000 developers in cloud technologies, should be scaled up.
Strengthen the Banking Sector: India must continue to clean up bank balance sheets and recapitalize public sector banks.
o Implementing recommendations from the RBI’s Internal Working Group on private bank ownership could attract more investment in the banking sector.
Land Reforms and Digitization: India should prioritize comprehensive land reforms, including digitization of land records and streamlining the acquisition process.
o Full digitization of land records under the Digital India Land Records Modernization Programme in all states could cut land-related disputes by 50% and reduce project delays.
Strengthen Intellectual Property Rights Protection: India needs to enhance its IPR regime to build investor confidence, especially in high-tech and R&D-driven sectors.
o Reducing the timeline for patent application processes from 18 months to 14-15 months (to match the U.S. and China) and increasing the number of patent examiners could help.
Boost Digital Infrastructure and Cybersecurity: Accelerating digital infrastructure development, such as expanding high-speed internet access under the BharatNet project, will attract investments.
o Implementing the National Cyber Security Strategy could potentially reduce cyber incidents by 50%, making India a safer destination for data-driven industries.
Promote Sustainable Development: Focusing on renewable energy and sustainable practices could attract Environment, Social, and Governance (ESG)-focused investments.
o Promoting circular economy models and water conservation could address resource scarcity, potentially drawing over USD 100 billion in green investments by 2030.
Enhance Education and Skill Development: Aligning the education system with industry demands, particularly in emerging technologies, is crucial.
o Effective implementation of the National Education Policy 2020 with a focus on digital skills and practical training, along with scaling successful models like the Indian Institutes of Skills, could help close the skill gap.
Conclusion
India is on a promising trajectory to become a global investment hub, fueled by strategic reforms, infrastructure enhancements, and a youthful, tech-savvy workforce. However, to unlock its full potential, the country must tackle critical challenges related to infrastructure, regulatory complexity, and skill development. Continuing to strengthen its digital and sustainable growth initiatives is also essential. By implementing focused strategies, India can solidify its status as a leading destination for global investments.
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